Insurance Final

Sector Report for Insurance 2002 - 2003
1“WHEREVER THERE IS UNCERTAINTY, THERE IS RISK. WHERE THERE IS RISK, THERE

IS INSURANCE”
INTRODUCTION
A thriving insurance sector is of vital importance to every modern economy. First because it
encourages the savings habit, second because it provides a safety net to rural and urban
enterprises and productive individuals. And perhaps most importantly it generates long-term
investible funds for infrastructure building. The nature of the insurance business is such that the
cash inflow of insurance companies is constant while the payout is deferred and contingency
related.
This characteristic of their business makes insurance companies the biggest investors in long-
gestation infrastructure development projects in all developed and aspiring nations. This is the
most compelling reason why private sector (and foreign) companies which will spread the
insurance habit in the societal and consumer interest are urgently required in this vital sector of
the economy.
With the nation's infrastructure in a state of imminent collapse, India couldn't have afforded to be
lumbered with sub-optimally performing monopoly insurance companies and therefore the
passage of the Insurance Regulatory & Development Authority Bill on December 2, 1999 heralds
an era of cautious optimism where stakes are high for all parties concerned. For the Govt. of
India, Foreign Direct Investment (FDI) must pour in as anticipated; for foreign insurers,
investments must start yielding returns and for the domestic insurance industry - their market
penetration should remain intact. On the fringe, the customer is pondering whether all the hype
created on liberalization will actually benefit him.
The IRDA Bill provides for the establishment of an authority to protect the interests of the holders
of insurance policies, to regulate, promote and insure orderly growth of the insurance industry
and amend the Insurance Act, 1938, the Life Insurance Act, 1956 and the General Insurance
Business (Nationalization) Act, 1972. The bill allows foreign equity stake in domestic private
insurance companies to a maximum of 26 per cent of the total paid-up capital and seeks to
provide statutory status to the insurance regulator. The insurance business in India is pegged at $
6.6 Billion whereas industry leaders feel privatization will increase it to $ 40 Billion within next 3-5
years.
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WHAT IS INSURANCE?
Insurance is a contract between two parties - the insurer (the insurance company) and the
insured (the person or entity seeking the cover) - wherein the insurer agrees to pay the insured
for financial losses arising out of any unforeseen events in return for a regular payment of
"premium".
Insurance is based on the principle of risk pooling. It is the transfer of financial responsibility for
the risk at the point of occurrence, and conventionally involves the insurer in a commitment to
pay. The insured is thus exchanging the uncertain cost of losses for the certain and known cost of
the premium. The cost arising from pure losses during the period of cover are then fixed for the
insured. The stabilization of loss costs means that earnings are less susceptible to the effects of
pure loss than when these are retained.
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OVERVIEW
With largest number of life insurance policies in force in the world, Insurance happens to be a
mega opportunity in India. It’s a business growing at the rate of 15-20 per cent annually and
presently is of the order of Rs 450 billion. Together with banking services, it adds about 7 per cent
to the country’s GDP. Gross premium collection is nearly 2 per cent of GDP and funds available
with LIC for investments are 8 per cent of GDP.
Yet, nearly 80 per cent of Indian population is without life insurance cover, health insurance and
non-life insurance continue to be below international standards. And this part of the population is
also subject to weak social security and pension systems with hardly any old age income
security. This itself is an indicator that growth potential for the insurance sector is immense.
A well-developed and evolved insurance sector is needed for economic development as it

provides long term funds for infrastructure development and at the same time strengthens the risk
taking ability. It is estimated that over the next ten years India would require investments of the
order of one trillion US dollar. The Insurance sector, to some extent, can enable investments in
infrastructure development to sustain economic growth of the country.
With a large capital outlay and long gestation periods, infrastructure projects are fraught with a
multitude of risks throughout the development, construction and operation stages. These include
risks associated with project implementation, including geological risks, maintenance, commercial
and political risks. Without covering these risks the financial institutions are not willing to commit
funds to the sector, especially because the financing of most private projects is on a limited or
non- recourse basis.
Insurance companies not only provide risk cover to infrastructure projects, they also contribute
long-term funds. In fact, insurance companies are an ideal source of long term debt and equity for
infrastructure projects. With long term liability, they get a good asset- liability match by investing
their funds in such projects.
IRDA regulations require insurance companies to invest not less than 15 percent of their funds in
infrastructure and social sectors. International Insurance companies also invest their funds in
such projects.
Insurance is a federal subject in India. There are two legislations that govern the sector- The
Insurance Act- 1938 and the IRDA Act- 1999.
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HISTORY OF INSURANCE IN INDIA:
1. Important milestones in the life insurance business in India
1912 The Life Assurance Companies Act enacted as the first statute to regulate the life
insurance business.
1928 The Indian Insurance Companies Act enacted to enable the government to
collect statistical information about life and non-life insurance businesses.
1938 Earlier legislation consolidated and amended to by the Insurance Act with the
objective of protecting the interest of the insuring public.
1956 245 Indian and foreign insurers and provident societies taken over by the central
government and nationalized. LIC formed by an act of parliament, viz. LIC Act,1956, with
a capital contribution of Rs.5 crore from the Government of India. In the same year 1956
the insurance industry of the country saw the start of a new era when the Life Insurance
Corporation (LIC) came into existence.
2. Important milestones in the general insurance business in India
1850 The first general insurance company, Triton Insurance Company was established
in Calcutta by the British.
1907 The Indian Mercantile Insurance Company Limited was set up. This was the first
company to transact all classes of general insurance business.
1957 General Insurance Council, a wing of the Insurance Association of India, frames
a code of conduct for ensuring fair conduct and sound business practices in general
insurance industry.
1968 The Insurance Act amended to regulate investments and set minimum solvency
margins and the Tariff Advisory Committee set up.
1972 the general insurance business act, 1972 nationalised the general insurance
business in India with effect from 1st Jan 1973. 107 insurers amalgamated and grouped
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into 4 companies, viz. national insurance co ltd, new India assurance co ltd, oriental
insurance co ltd and united India insurance co lt. GIC was incorporated as a co.
PRESENT SCENARIO AND REGULATORY ENVIRONMENT
Present Scenario:
The Government of India liberalized the insurance sector in March 2000 with the passage of the
Insurance Regulatory and Development Authority (IRDA) Bill, lifting all entry restrictions for
private players and allowing foreign players to enter the market with some limits on direct foreign
ownership. Under the current guidelines, there is a 26 percent equity cap for foreign partners in
an insurance company. There is a proposal to increase this limit to 49 percent. Premium rates of
most general insurance policies come under the purview of the government appointed Tariff
Advisory Committee.
The opening up of the sector is likely to lead to greater spread and deepening of insurance in
India and this may also include restructuring and revitalizing of the public sector companies. A
host of private Insurance companies operating in both life and non-life segments have started
selling their insurance policies since 2001.
Regulatory Issues:
The IRDA Bill lay down that the Indian promoter must dilute the stake in the private insurance
firms from 74 per cent to 26 per cent in ten years. The bill stipulates tough solvency margins --
Rs 500 million for life insurance firms, Rs 500 million or a sum equivalent to 20 per cent of net
premium income for general insurance and Rs 1 billion for reinsurance business.
The insurer has to maintain separate accounts relating to fund of shareholders and policyholders.
The funds of policyholders should be retained within the country but does not cover repatriation of
profits and dividends. Insurance companies under the new regime will have to have exposure to
rural and social sectors. Foreign investment in insurance, the bill states, is crucial to financing
infrastructure and better insurance cover.
The key to success in opening up the insurance sector in India is regulation. An example of how
poor regulation can destroy a market is the mutual fund industry. A combination of improper
marketing practice and unfulfillable promises has resulted in a loss of investor faith in that
industry. Incidentally, the insurance industry in India itself has gone through the same phase.
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One of the reasons for nationalization of the insurance industry (LIC in 1956 and GIC in 1973)
was the mismanagement and malpractice of erstwhile private players. But if the statements of
IRA officials are anything to go by, the new regulations are expected to be on the right track. N I
Rangachary, chairman, IRA, has already provided the time table for the changes once the Bill is
passed. The IRA has already indicated that it will have tough norms for new participants.
Insurance is a federal subject in India. The primary legislation that deals with insurance business
in India is: Insurance Act, 1938, and Insurance Regulatory & Development Authority Act, 1999.
Insurance Industry has ombudsman in 12 cities. Each ombudsman is empowered to redress
customer grievances in respect of insurance contracts on personal lines where the insured
amount is less than Rs. 20 lakhs, in accordance with the Ombudsmen Scheme.
Insurance Regulatory & Development Authority (IRDA):
IRDA was constituted by an act of parliament.
(1) Subject to the provisions of Section 14 of IRDA Act, 1999 and any other law for the time
being in force, the Authority shall have the duty to regulate, promote and ensure orderly
growth of the insurance business and re-insurance business.
(2) Without prejudice to the generality of the provisions contained in sub-section (1), the
powers and functions of the Authority shall include, -
(a) issue to the applicant a certificate of registration, renew, modify, withdraw,

suspend or cancel such registration;
(b) protection of the interests of the policy holders in matters concerning

assigning of policy, nomination by policy holders, insurable interest,
settlement of insurance claim, surrender value of policy and other terms and
conditions of contracts of insurance;
(c) specifying requisite qualifications, code of conduct and practical training for
intermediary or insurance intermediaries and agents;
(d) specifying the code of conduct for surveyors and loss assessors;
(e) promoting efficiency in the conduct of insurance business;
(f) promoting and regulating professional organizations connected with the

insurance and re-insurance business;
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(g) levying fees and other charges for carrying out the purposes of this Act;
(h) calling for information from, undertaking inspection of, conducting enquiries
and investigations including audit of the insurers, intermediaries, insurance
intermediaries and other organizations connected with the insurance
business;
(i) control and regulation of the rates, advantages, terms and conditions that may
be offered by insurers in respect of general insurance business not so
controlled and regulated by the Tariff Advisory Committee under section 64U
of the Insurance Act, 1938 (4 of 1938);
(j) specifying the form and manner in which books of account shall be
maintained and statement of accounts shall be rendered by insurers and other
insurance intermediaries;
(k) regulating investment of funds by insurance companies;
(l) regulating maintenance of margin of solvency;
(m) (m)adjudication of disputes between insurers and intermediaries or insurance

intermediaries;
(n) supervising the functioning of the Tariff Advisory Committee;
(o) specifying the percentage of premium income of the insurer to finance

schemes for promoting and regulating professional organizations referred to
in clause (f);
(p) specifying the percentage of life insurance business and general insurance
business to be undertaken by the insurer in the rural or social sector; and
(q) exercising such other powers as may be prescribed
Tariff Advisory Committee (TAC)
(Statutory Body under Insurance Act 1938)
Tariff Advisory Committee controls and regulates the rates, advantages, terms and
conditions that may be offered by insurers in respect of General Insurance Business
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relating to Fire, Marine (Hull), Motor, Engg. and Workmen Compensation.
INSURANCE TYPES:
1. NON-LIFE INSURANCE
Market Players:
1. Bajaj Allianz General Insurance Co. Ltd.
2. ICICI Lombard General Insurance Co. Ltd.
3. HDFC Chubb Co. Ltd.
4. IFFCO Tokyo General Insurance Co. Ltd.
5. National Insurance Co. Ltd.
6. New India Assurance Co. Ltd.
7. Oriental Insurance Co. Ltd.
8. Reliance General Insurance Co. Ltd.
9. Royal Sundaram Alliance Insurance Co. Ltd.
10. Tata AIG General Insurance Co. Ltd.
11. United India Insurance Co. Ltd.
12. Cholamandalan -
 ECGC- Provides export credit insurance support to Indian exporters.
Products:
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Fire Insurance Policy
A house hold can cover his movable and immovable properties against fire and allied perils.
This policy can also be taken by people staying in a rented or leased house if they are
responsible for its safety by any covenant.
The Standard Fire and Special Perils Policy can be taken to cover any property within the
country. It offers cover against loss or damage due to accidental fires, lightning, explosion
and implosion due to pressure vessels, rioting mobs, striking workers and malicious act by
third parties. It also covers impact/damage by rail or road vehicle , carts and animals or
aircraft apart from these it also covers landslides , rockslides, storms , cyclones , flood
etc.The main benefit of this policy are that claims are payable at market value of the property
damaged at the time of loss upon an overall limit of sum insured opted.
Burglary Insurance Policy
This policy is suitable for people who have movable household property (clothes, appliances,
other personal effects, etc) which are prone to burglary, theft or larceny. The policy pays for
any loss of property due to burglary occurring during the policy period. The amount of claim
payable would be limited to sum insured or market value at the time of loss which ever is
lower.
All Risk Policy
The policy is suitable for people owning jewelry or valuables which are prone to accidental
loss or damage. The policy covers jewelry, ornaments, paintings, work of art, and similar
artifacts. The scope of cover is limited to loss or damage due to fire, riot and strike, terrorist
acts, burglary housebreaking, larceny or theft and accidental losses and damage.
Plate Glass Insurance Policy
Any person who installs plate glass of substantial value can avail of this policy. It is an annual
policy covering all kinds of accidental breakage of fixed plate glass like window glasses,
showroom glasses etc.
Domestic Appliance Policy
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This policy is suitable to householders owning domestic appliances. For example

refrigerators, washing machines, ovens and gadgets of similar nature.
It covers damage due to electrical or mechanical breakdown. The cover can be taken on
individual policy or as apart of the Householders package Policy. The loss is paid to the
extend of sum insured. The premiums are charged on the replacement value of the
appliance.
Householder’s Package Policy

The policy addresses all the insurance needs and covers of a householder with a single
package policy offered at economical rate s of premium. It is a package policy divided into ten
sections covering all the areas discussed above in addition to few more. The package
includes following sections:
 Fire insurance
 Burglary insurance
 All risk insurance plate glass insurance
 Plate glass insurance
 Television insurance including VCR, VCP and music system.
 Pedal Cycle insurance
 Personal baggage insurance
 Personal accident insurance with a family package discount of 10%.
 Third party liability which covers injury to third party or damages to third
party property.
The policy will pay for the actual extend of loss/damage to property under the respective
section chosen.
Health Insurance
The cost of health care is rising at a fast pace.India is subscribing to the international treaty
on pharmaceutical patents, which is pushing up the cost of drugs. In India a large section of
people have been used to subsidized healthcare facilities through state hospitals. But now
municipal hospitals are taken up by corporate groups which are increasing the cost of health
care. This expense can be met though Mediclaim.
Mediclaim insurance is provided by state owned companies: National insurance, United India
Insurance and Oriental. In addition there are new private companies: Baja Alliance, General
insurance, Royal Sundaram General Insurance, HDFC Chubb General Insurance, ICICI
Lombard General insurance and Iffco Tokio Marine.
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The policy provides compensation for hospitalization expenses incurred under medical advice
as an inpatient at a registered nursing home anywhere in India. The hospitalization expense
will cover: expenses for room, boarding, nursing, surgeon, anesthetist, consultant, specialist,
blood, oxygen, diagnostic tests, chemo/radio therapy and dialysis etc.
Most insurance companies are providing cashless service for mediclaim policyholder. The
insurance companies outsource the job of maintaining a track record of policy holders to a
third administrator who is an expert in healthcare. The main job of TPA is networking with
hospitals and providing them assurance that if anybody holding a Mediclaim policy serviced
by the TPA is admitted , the TPA would foot the bills on account of the insurance company.
Film insurance
These companies are eyeing the entertainment industry as a whole new area of opportunity.
New private companies are getting into film nis.Bajaj Alliance General Insurance has
provided a policy for Vishesh Production’s movie Mastic.
In addition to package cover that other companies have been providing until now, Baja
Alliance is willing to provide cover due to increase in interest expenses due to delay arising
out of insured events. Indian Film Industry was granted an industry status under the IDBI Act
in October 2000; this paved the way for the insurance companies to enter the Film industry.
The first cover to be provided far a movie was Cine Mukta Policy a package cover developed
by United India Assurance for Subhash Ghai’s Taal. A package policy for movie production
typically covers the star cast for death and sickness as well as the negatives, raw stock props
and wardrobe. The policy also covers damages to third party property, unforeseen extra
expenses incurred in the project and Film unit’s personnel from accident as well as cash in
transit.
Motor insurance
Under motor insurance there are two types of Policies:
 Liability Only Policy: This covers Third Party Liability for bodily injury and/ or death and
Property Damage. Personal Accident Cover for Owner-Driver is also included.
 Package Policy: This covers loss or damage to the vehicle insured in addition to (i)
above.
The Company will indemnify the insured against loss or damage to the vehicle insured
hereunder and / or its accessories by fire explosion self ignition or lightning, burglary
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housebreaking or theft, riot and strike, earthquake (fire and shock damage), accidental
external means; malicious act and terrorist activity;
Players Profile:
General Insurance Corporation Of India
The General Insurance Corporation of India was formed and registered on 1st January 1973
under the Insurance Act 1938, in accordance with the provisions of the General Insurance
Business (Nationalization) Act 1972. The corporation was formed as a holding company, with
four subsidiary operating companies. They are:
 New India Assurance Company Ltd

 United India Insurance Company Ltd
 National Insurance Company Ltd
 Oriental Insurance Company Ltd.
ICICI Lombard General Insurance Company Limited
The ICICI Lombard General Insurance Company Limited ("ICICI Lombard") is a joint venture
between ICICI Bank Limited, India's second largest bank and Lombard Canada Limited, one of
the oldest property and casualty insurance companies in Canada.
ICICI Lombard offers a wide range of retail and corporate general insurance products designed
as per your needs in today's challenging business environment.
ICICI Lombard leverages the ICICI Bank Group's strong brand equity, extensive distribution
networks and sound technological infrastructure to service customer needs. ICICI Lombard has
the guidance of Lombard, Canada, on domain knowledge, product innovation, business
processes based on cutting-edge technology and international best practice in the insurance
business.
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Baja Allianz General Insurance Company Limited
Bajaj Allianz General Insurance Company Limited is a joint venture between Bajaj Auto Limited
and Allianz AG of Germany. Both enjoy a reputation of expertise, stability and strength.
Incorporated on 19th September 2000 Bajaj Allianz General Insurance Company received the
Insurance Regulatory and Development Authority (IRDA) certificate of Registration (R3) on May
2nd, 2001 to conduct General Insurance business (including Health Insurance business) in India.
The Company has an authorized and paid up capital of Rs 110 crores
In less than twelve months of operation, the company has assured numero uno position among
the private non-life insurers. As on 31st March 2003, Bajaj Allianz General Insurance Co.Ltd
completed a premium income of Rs.300 Crores and already has a network of 38 offices across
the length and breadth of the country.
The Company currently offers the following products:
Tariff Products
 Fire Insurance
 Consequential Loss(Fire) Insurance
 Industrial All Risk
 Motor ( includes private cars, two wheelers and commercial vehicles )
 Workmen’s Compensation
 Engineering ( includes Contractors Plant and Machinery, Electronic equipment,
Machinery Loss of Profits, Machinery, Boiler Explosion, Machinery Breakdown,
Deterioration of stock)
Non Tariff products
 Study Companion
 Critical Illness
 Health Guard
 Personal Guard
 Burglary
 Money
 Plate Glass
 Public Liability
 House Holders
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 Shopkeepers Insurance
 Travel Companion
 Hospital Cash
 Office Package
Risk Management Services
We offer a gamut of risk management services that include:
 Risk Analysis
 Risk Grading & Risk Control
 Hazard and Operability Studies
 Safety Audit
 Disaster Management Planning
 Risk Management Training
 Development and Monitoring of Risk Management programmes
 Insurance portfolio analysis
 Accident Investigations
Cholamandalam General Insurance

Their expertise ranges across all general insurance areas like property and property crime
insurances, marine insurance, financial lines insurance, liability insurance, motor insurance,
accident insurance, health insurance, travel health insurance and also rural insurance.
Their products include personal and business insurance products. In Personal Insurance
products they offer:
 Motor Insurance
 Health Insurance
 Home Insurance
 Personal accident
 Burglary Insurance
 Pet Insurance
 Marine Insurance
In Business Insurance they provide:

 All risk Insurance
 Engineering Insurance
 Contractors Plant
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 Fire Insurance
 Machinery breakdown Insurance
 Product liability
 Directors and officers
IFFCO- TOKIO General Insurance Co. Ltd
IFFCO-Tokio General Insurance Co. Ltd. (ITGI) is a joint venture between IFFCO and The Tokio
Marine and Fire Insurance Co. Ltd, Japan. Indian Farmers Fertiliser Co-operative Limited
(IFFCO) is well known as a pioneer in large-scale fertiliser manufacturing and is the leading
fertiliser producer in the country
ITGI is looking at expanding the market base of general insurance in India by opening Offices in
most major cities in India.
Their major products are:
o Standard fire and Special perils
o Industrial All Risk
o Contractors All Risk
o Electronic Equipment Insurance
o Machine breakdown Insurance
o Boiler and Pressure Plant
o Marine Insurance
o Motor Insurance
Market Size:
In December 2000, the GIC subsidiaries were restructured as independent insurance companies.
At the same time, GIC was converted into a national re-insurer. In July 2002, Parliament passed
a bill, delinking the four subsidiaries from GIC.
Presently there are 12 general insurance companies with 4 public sector companies and 8 private
insurers. Although the public sector companies still dominate the general insurance business, the
private players are slowly gaining a foothold. According to estimates, private insurance
companies have a 10 percent share of the market, up from 4 percent in 2001. In the first half of
2002, the private companies booked premiums worth Rs 6.34 billion. Most of the new entrants
reported losses in the first year of their operation in 2001.
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Insurance costs constitute roughly around 1.2- 2 percent of the total project costs. Under the
existing norms, insurance premium payments are treated as part of the fixed costs. Consequently
they are treated as pass-through costs for tariff calculations.
For Projects costing up to Rs 1 Billion, the Tariff Advisory Committee sets the premium rates, for
Projects between Rs 1 billion and Rs 15 billion, the rates are set in keeping with the committee's
guidelines; and projects above Rs 15 billion are subjected to re-insurance pricing. It is the last
segment that has a number of additional products and competitive pricing.
Insurance, like project finance, is extended by a consortium. Normally one insurer takes the lead,
shouldering about 40-50 per cent of the risk and receiving a proportionate percentage of the
premium. The other companies share the remaining risk and premium. The policies are renewed
usually on an annual basis through the invitation of bids.
Of late, with IPP projects fizzling out, the insurance companies are turning once again to old
hands such as NTPC, NHPC and BSES for business.
New Business Scenario and Performance for 2002-2003:
The non-life insurance industry had two new entrants in the private sector during the financial
year 2002-03, namely, Cholamandalam General Insurance and HDFC Chubb General Insurance.
The public sector Export Credit and Guarantee Corporation (ECGC), which has been carrying on
business for many years, now got itself registered with the IRDA during the year. The total
premium earned by the general insurance industry in the year 2002-03 was Rs. 1,42,79.32
crores including ECGC which earned a premium of Rs. 376.03 crores) against Rs. 11,354.64
crores in 2001-02, which figure excludes ECGC. Of this the public sector insurers (including
ECGC claimed a market share of 90.68 per cent against a share of 96.24 per cent last year. The
private sector had a share of 9.32 (3.76) per cent.
Of the total business Motor premiums came to Rs. 5,419.95 crores, or 38 per cent of total
premiums. The public sector earned Rs. 5,038.16 crores out of this and it accounted for 39 per
cent of their total business. The private sector wrote Rs. 381.79 crores worth Motor business
accounting for 31 of their portfolio.
The Fire business brought in Rs. 2,969.13 crores or 21 per cent of the premiums of the industry.
Of this the public sector share was Rs. 2557.22 crores or 19.75 per cent of its portfolio and that of
the private sector Rs. 411.91 crores accounting for 29 per cent of its portfolio.
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Health insurance premiums stood at Rs.861.94 crores or 6 per cent of the premiums of the entire
industry. Of this, the public sector wrote Rs. 962.77 crores worth of business making up 6.02 of
their portfolio and the private sector Rs. 82.34 crores which was 6.18 of their business.
Company Wise Performance (May 2003):
S.No. Insurer Premium(lakh) No. of Market Share

Policies %
1 Royal Sundaram 1.27
Fire 3,826.51 17,425
Marine-Cargo 1,298.24 3,602
Engineering 1,306.98 561
Motor 8,471.66 2,18,991
Health 953.48 23,271
Liability 156.62 261
Personal Accident 1,885.16 44,005
Others 278.63 4,223
TOTAL 18,177.28 3,12,339
2 Tata AIG 1.55
Fire 3,172.01 4,078
Marine-Cargo 2,613.22 2,805
Motor 7,721.97 81,026
Health 3,282.05 91,700
Liability 2,360.19 293
Others 87.31 3,226
TOTAL 22,192.94 1,83,772
3 Reliance 1.30
Fire 5,481.50 4,333
Marine Cargo 834.07 3,012
Marine Hull 57.47 2
Motor 755.03 13,853
Health 517.80 934
Aviation 424.57 46
Liability 1,287.68 791
Marine Energy 5,949.52 4
Other Miscellaneous 1,635.69 4,864
TOTAL 18,494.88 28,631
4 IFFCO-Tokio 1.50
Fire 10,411.90 11,242
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Marine Cargo 1,389.77 8,234

Marine Hull 453.47 18
Engineering 2,733.14 1,408
Motor 2,568.33 1,01,448
Health 954.30 12,578
Personal Accident 1,119.65 2,559
Others 1,389.84 8,343
TOTAL 21,412.69 1,46,559
5 New India 27.52
Fire 87,722.00 10,19,505
Marine Cargo 18,975.00 5,03,085
Marine Hull 15,129.00 15,690
Engineering 14,500.00 85,35,922
Motor 1,54,060.00 9,29,820
Health 39,000.00 9,55,767
Aviation 13,050.00 125
Liability 1,210.00 33,752
Others 49,254.00 24,68,132
TOTAL 3,92,900.00 1,44,61,798
6 Oriental 19.49
Fire 52,821.03 7,07,803
Marine Cargo 13,639.62 1,72,480
Marine Hull 9,077.74 6,439
Engineering 15,938.19 59,067
Motor 1,04,391.15 49,35,319
Health 18,695.84 4,00,190
Aviation 23,444.15 1,371
Others 40,233.40 16,81,204
TOTAL 2,78,241.12 79,63,873
7 National 20.23
Fire 53,544.84 6,14,053
Marine Cargo 16,276.87 2,28,990
Marine Hull 6,035.60 5,386
Engineering 13,617.63 1,20,443
Motor 1,28,310.80 50,88,805
Health 20,264.20 5,22,910
Aviation 6,888.81 1,002
Liability 3,052.77 45,205
Crop Insurance 6.29 4
Others 40,918.18 16,48,405
TOTAL 2,88,915.99 82,75,203
8 United India 20.81
Fire 61,634.00 13,45,133
Marine Cargo 15,556.00 1,85,085
Marine Hull 17,585.00 4,455
Engineering 15,025.00 3,14,352
Motor 1,17,054.00 48,79,052
Health 18,317.00 1,78,050
Aviation 2,503.00 26
Liability 2,567.00 74,473
Crop Insurance 107.00 1,232
Others 46,774.00 25,24,599
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TOTAL 2,97,122.00 95,06,487

9 ICICI Lombard 1.51
Fire 13,149.82 38,820
Marine Cargo 614.20 1,672
Marine Hull 300.35 12
Motor 281.13 3,214
Health 1,341.68 799
Aviation 138.33 16
Special Contingency 10.22 31
Others 3,250.89 52,923
TOTAL 21,521.56 98,293
10 Bajaj Allianz 2.03
Fire 4,605.17 19,166
IAR 902.87 459
Cargo 739.46 9,783
Hull 0.14 1
Motor 17,174.23 6,65,150
Engg 1,784.42 2,087
Health 1,062.99 16,483
Aviation 57.17 10
Travel 906.58 68,060
Special Contingency 408.88 719
Miscellaneous 1,286.58 37,272
TOTAL 28,928.49 8,19,190
11 Cholamandalam 0.1
Fire 544.25 613
Cargo 16.81 192
Engg 173.48 67
Motor 317.99 23,875
Health 122.04 1,445
Liability 273.40 49
Crop Insurance 1.63 1
Others 28.19 891
TOTAL 1,477.79 27,133
12 HDFC Chubb 0.07
Motor 888.97 17,533
Personal Accident 2.23 6
Others 52.78 23
TOTAL 943.98 17,562
13 ECGC 2.63
Export Credit 37,603.00 10,779
Insurance
TOTAL 37,603.00 10,779
GRAND TOTAL 14,27,931.72 4,18,51,619
New India leads with a 27.82 per cent share, followed by United India at 21.67 per cent,
National Insurance at 20.67 per cent and Oriental Insurance at 20.35 per cent.
As against this, the private sector accounted for a market share of 9.49 per cent of the total
premium underwritten during the period under review. Of the private players, Bajaj Allianz
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leads the list with 2.07 per cent share. While the new entrants such as Cholamandalam and
HDFC Chubb underwrote on an average 0.06 per cent of the total premiums, the other private
non-life players underwrote premiums in the range of 1.32 per cent to 1.6 per cent.
MARKET SHARE FOR GENERAL INSURANCE
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2. LIFE INSURANCE
Life insurance specifically covers the risk that exists in ones life. This risk may be risk of
accidental death, risk of death due to illness, or risk of natural death. Life insurance aims to
protect the family of the life insured so that they may not suffer from financial consequences
on death of the insured, and if there are any liabilities they are well covered.
Market Players:
1. Allianz Bajaj Life Insurance Co. Ltd.
2. AMP Sanmar Assurance Co. Ltd.
3. Birla Sun Life Insurance Co. Ltd.
4. AVIVA Life insurance Co. Ltd.
5. HDFC Standard Life Insurance Co. Ltd.
6. ICICI Prudential Life Insurance Co. Ltd.
7. ING Vyasya Life Insurance Co. Pvt. Ltd.
8. Life Insurance Corporation Of India.
9. Max New York Life Insurance Co. Ltd.
10. Metlife India Insurance Co. Pvt. Ltd.
11. OM Kotak Mahindra Life Insurance Co. Ltd.
12. SBI Life Insurance Co. Ltd.
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13. Tata AIG Life Insurance Co. Ltd.
Products:
Term Assurance:
Term assurance products are low premium, pure risk products without any savings element.
As the name suggest, they provide insurance cover for a specific term. These policies are
especially useful when one has taken a loan and have the future liability of repayment. In
such a case, the unfortunate death of the borrower will lead to financial set back on family, as
they would have to repay the loan. This policy can be taken for a term equivalent to the
period of repayment and for a sum assured equal to loan outstanding so that in case of any
unfortunate event the policy can take care of outstanding liability.
Person, who intends to purchase the policy, must decide the term of policy. He will then have
to pay premiums for that term. Some companies allow you to take the premiums for a term
shorter then the policy term. You will get a cover for that term, i.e. in case of your unfortunate
death during the term; your beneficiaries will get sum assured. They will also no longer have
to pay the future premiums and the policy will cease.
Endowment Policies:
Endowment products are those that offer investment avenues coupled with life insurance.
These are products that can be taken for a specific term and by the end of the term, the sum
assured is paid to the policy holder along with the returns in the form of bonuses.
Money-Back Policies:
Money back policies are the slight variant of endowment policy. The aim of these types of
policy is to provide cash flows at regular intervals. For those who are looking for periodic
inflow of income, this may be the best policy.
In money back policies you have to choose a period for which you intend to buy the policy.
That done, you will pay premiums as per the mode selected by you, i.e. , either single or
regular mode. Now the policy will have fixed intervals at which you will get the proceeds.
These proceeds are usually fixed as a percentage of sum assured. There are normally 4
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installments over the term of the policy. Along with the last installment, you will get the
accumulated bonuses, if the company has declared any. This policy comes with a life cover
during the term of the plan. If death of the policy holder occurs during the plan, the beneficiary
will receive the entire sum assured plus accumulated bonuses irrespective of the cash payout
made till date.
Children’s Policies:
There are two types of children’s policies. In one type, policy is taken to cover the life of the
child. The policy is taken in the name of a child and parents are the owners. The parents
have to pay premiums on the policy till the child attains majority. If the child dies before he
completes 18, the benefits are paid out to the parents. On maturity, that is, on completion of
18 years of age the survival benefits are paid out to charity. The sum assured plus
accumulated benefits. Now in this policy, if the parent dies, there is no waiver of premium. All
future premiums will have to be paid.
In the second type of policy, parents are the policy holders and children are the beneficiaries.
This policy is in the nature of money back policy. The parents can have premiums for a
specific term and the child will get the proceeds in specific intervals. If the parent dies during
the term of the policy, the premiums are waived and the sum assured is paid to the child
irrespective of the periodic payout. On survival upto maturity, final installment is paid with
bonuses, if any.
Unit Linked Policies:
Unit linked plans are also investment oriented. The only aspect that sets them apart from
regular investment plans is that they function more like mutual funds. A portion of the
premiums is invested in different debt and equity instruments. So your investments grows are
deplete according o your market movements. Alongside the policy also provides risk cover
during the period of investment.
Annuity:
Annuity is a term used with respect to pension plans. While you are employed, you earn a
regular stream of income in the form of salary. However, once you retire, you are left only
with savings to fall back on. In the pension fund, you will pay premiums for a specific term. On
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completion of that term you will get, in return for your pension policy, a certain amount every
year. This amount called annuity is aimed to provide you with income during your retirement.
Joint Life Policies:
Joint life policies cover two lives for a single premium. The two lives are covered
independently, i.e., the death of one life does not affect the benefits of death to the other.
Riders:
Rider is a provision attach to a policy that adds benefits not found in the original policy or that
changes the original policy. It is adding - on benefit and changes the structure of the base
policy for a low premium.
Double Sum Assured:
It provides an additional sum assured to the survivors in case of death of the policyholder. By
simply paying a little extra premium, the policy holder life can be doubled.
Critical Illness Rider:
This rider covers diseases like cancer, heart attack, kidney failure and so on. In the case of
this rider also, and amount equal to the sum assured is paid to the policy holder on diagnosis
to cover critical illness. Incase of critical illness rider, the policy continues to be in full force,
except that a critical illness cover would not be paid again while other benefits of the policy
continues to remain in force.
Accidental Benefit Rider:
The accidental death benefit rider provides for an additional amount equivalent to the sum
assured to the survivor of the policy holder, in case of an accidental death. However, this
benefit is paid to the survivors only if death occurs to the policyholder within 90 days of the
accident. Likewise, there is also an accident disability benefit rider offered by some
companies. Money is payable in case of disability that occurs as a result of an accident. In
this case, if the life assured totally and permanently disabled as a result of an accident, 10%
of the sum assured is paid every year for 10 years commencing from first anniversary of the
disability date. The premiums falling due on or after the disability date should also be waived.
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Market Characteristics:
 The global Life Insurance Market in Year 2001 was estimated at $1440 billion compared with
the Non-Life market of $960.9 billion
 The United States accounts for about one-third of the total insurance market with Japan
standing next with a 23.1% share
 India stands at the 23rd position (0.34% share) with total premium collections of USD 7.2
Billion
 The ratio of life insurance premium collections to GDP is just 1.4% compared to about 10% in
South Africa and in South Korea.
 The Indian Life Market is estimated to grow to reach USD $25 billion by 2010 (assuming a
7% real annual growth in GDP)
 It is estimated that the LIC will have some 70-80% of the market whereas the new companies
will share some 20-30%.
Market Size:
The Life Insurance market in India is an underdeveloped market that was only tapped by the state
owned LIC till the entry of private insurers. The penetration of life insurance products was 19
percent of the total 400 million of the insurable population. The state owned LIC sold insurance as
a tax instrument, not as a product giving protection. Most customers were under- insured with no
flexibility or transparency in the products. With the entry of the private insurers the rules of the
game have changed.
The 12 private insurers in the life insurance market have already grabbed nearly 9 percent of the
market in terms of premium income. The new business premiums of the 12 private players have
tripled to Rs 1000 crore in 2002- 03 over last year. Meanwhile, state owned LIC's new premium
business has fallen.
Innovative products, smart marketing and aggressive distribution. That's the triple whammy
combination that has enabled fledgling private insurance companies to sign up Indian customers
faster than anyone ever expected. Indians, who have always seen life insurance as a tax saving
device, are now suddenly turning to the private sector and snapping up the new innovative
products on offer.
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The growing popularity of the private insurers shows in other ways. They are coining money in
new niches that they have introduced. The state owned companies still dominate segments like
endowments and money back policies. But in the annuity or pension products business, the
private insurers have already wrested over 33 percent of the market. And in the popular unit-
linked insurance schemes they have a virtual monopoly, with over 90 percent of the customers.
The private insurers also seem to be scoring big in other ways- they are persuading people to
take out bigger policies. For instance, the average size of a life insurance policy before
privatization was around Rs 50,000. That has risen to about Rs 80,000. But the private insurers
are ahead in this game and the average size of their policies is around Rs 1.1 lakh to Rs 1.2 lakh-
way bigger than the industry average.
New Business Scenario and Performance for 2002-2003:
The year 2002-03 marked the end of the third financial year for the private sector life insurers.
During the year, Aviva Life was the lone new entrant in the life segment, thereby taking the
number of insurers doing life business to 13, inclusive of the monolithic public sector Life
Insurance Corporation of India (LIC). The year witnessed tremendous growth in terms of private
Insurers adding new business to their portfolio. However the overall new business premium
witnessed a decline vis-à-vis the financial year 2001-02, as the impact of declining interest rates
in the economy percolated down to the insurance sector. With the interest rates moving
southwards, the insurers slowly withdrew policies with guaranteed returns. Overall the decline in
new business was 18 per cent with premium underwritten at Rs. 12,32,483.37 lakhs as against
Rs. 15,13,993.75 lakhs in the previous year.
Performance of LIC
The business of LIC of India was impacted the most with the individual business (inclusive of
Bima Nivesh and Single Premium) exhibiting a decline of approximately 24 per cent at premium
underwritten of Rs. 9,36,111 lakhs. Similarly individual pension plans exhibited a decline of 87 per
cent at Rs. 32,775.64 lakhs. Interestingly the number of individual assurance policies showed an
increase of 9.54 per cent over the previous year at 2,39,31,247. As against this, the pension and
group schemes exhibited a growth rate of 65 per cent with new business premium of Rs.
1,64,574 lakhs covering 18,48,428 lives. The growth in this sector was the highest recorded in the
last ten years. In the social sector, under the Janashree Bima Yojana and the Krishi Shramik
Samajik Suraksha 7,46,129 lives were covered under 6,071 schemes LIC had a 92% market
share.
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Company Wise Performance (May 2003):
Srno. Company Name Premium(lakh) No. of Market

Policy share
1 Tata AIG 5,975.22 0.48
Individual 4,685.73 91,500
business
Group business 1,289.49 68
2 OM Kotak 3,068.33 0.25
Individual 2,987.11 32,247
business
Group business 81.22 3
3 Birla Sunlife 14,956.90 1.21
Individual 12,627.60 64,758
business
4 Max New York 7,681.07 0.62
Individual 7,535.31 74,199
business
Group business 145.76
5 ING Vysya 1,747.00 0.14
Individual 1,740.70 26,663
business
6 HDFC Standard 13,266.21 1.08
Individual 12,876.43 1,24,837
business
7 MetLife 620.09 0.05
Individual 616.72 11,225
business
8 Allianz Bajaj 5,378.39 0.44
Individual 5,347.66 1,15,951
business
9 ICICI Prudential 36,494.40 2.96
Individual 36,295.00 2,44,434
business
10 SBI Life 7,275.16 0.59
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Individual 5,306.00 17,440

business
11 AVIVA 1,261.06 0.10
Individual 1,253.25 17,023
business
12 AMP Sanmar 460.42 0.04
Individual 387.37 16,344
business
Group business 73.05
PRIVATE TOTAL 98,184.25
Individual 91,658.88 8,36,621
business
13 LIC 11,34,299.12 92.03
Individual 9,68,886.85 2,45,29,946
business
Group business 1,65,412.27 15,637
GRAND TOTAL 12,32,483.37
Individual 10,60,545.73 2,53,66,567
business
Group business 1,71,937.64 16,123
Life insurance: LIC has 92.03% share

Remaining 7.97 % shared by private players
MARKET SHARE OF LIFE INSURANCE – PRIVATE PLAYERS
Market shares of private players
1% TATA AIG
OM KOTAK
1% BIRLA SUNLIFE
8% 6% 4% MAX NEW YORK
15% ING VYSYA
HDFC STANDARD
MET LIFE
37% 7%
ALLIANZ BAJAJ
6% 1% 1% ICICI PRUDENTIAL
SBI LIFE
13%
AVIVA
AMP SANMAR
3. RE-INSURANCE
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Insurance companies retain only a part of the risk (less than 10 per cent) assumed by them,
which can be safely borne from their own funds. The balance risk is re-insured with other
insurers. In effect, therefore, re-insurance is insurer's insurance. It forms the backbone of the
insurance business. It helps to provide a better spread of risk in the international market, allows
primary insurers to accept risks beyond their capacity settle accumulated losses arising from
catastrophic events and still maintain their financial stability.
While GIC's subsidiaries look after general insurance, GIC itself has been the major reinsurer.
Currently, all insurance companies have to give 20 per cent of their reinsurance business to GIC.
The aim is to ensure that GIC's role as the national reinsures remains unhindered. However, GIC
reinsures the amount further with international companies such as Swissre (Switzerland),
Munichre (Germany), and Royale (UK). Reinsurance premiums have seen an exorbitant increase
in recent years, following the rise in threat perceptions globally.
Player:
General Insurance Corporation of India Ltd.
4. BANK ASSURANCE
Bancassurance:
It is a term which refers to the selling of insurance policies through a bank’s established
distribution channels. The unusual spelling reveals the French origins of the word.
Due to reasons peculiar to that country’s financial system and culture, a large portion of insurance
buying in France takes place through banks, unlike the rest of the world where insurance sales
are driven by agents.
Bancassurance in its purest form refers to banks issuing insurance policies under their own name
and retaining the risk on their own books.
However, in a very broad sense it could also be taken to mean a bank selling insurance products
of its own insurance subsidiary or any other insurance company.
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In other parts of Europe, the bancassurance concept has evolved following merger of banks and
insurance companies. However, here the mergers have been mainly driven by an attempt by
financial institutions to gain economies of size and tax benefits that are available to insurance
companies.
One example is the Dutch financial services firm ING, formed in 1990 by a merger of the
country’s largest insurance company, National Nederlanden NV, and the third largest banking
group NMB Postbank.
In the worlds largest insurance market — the US, bancassurance has not caught on because of
the famous Glass Steagal Act, which was in force until recently and barred banks from entering
the insurance business.
Following the repeal of the Act, the US has also seen mergers between banks and insurance
companies fructifying, such as the recent merger of Citibank and Travelers group.
Why are banks getting into insurance:
With globalisation and intense competition, banks are seeing their spreads — the difference
between their borrowing and lending rates — come down sharply.
Banks have responded by trying to use their reach and customer base to increase their fee-based
income. Insurance is an ideal option as banks feel they fulfill the three major requirements for a
successful insurance business viz asset management and investment skills, distribution and
capital adequacy.
Banks would also like to fulfill all the financial needs of their customers.
Bancassurance in India:
So far banks could not sell policies for others for two reasons. The Banking Regulation Act did not
allow them to get into insurance and the Insurance Act does not allow insurance companies to
pay commission to anybody other than agents.
Until now only individuals could act as insurance agents. After the opening of the insurance
sector to private players, RBI has selectively allowed banks to promote insurance companies.
The ostensible reason was to allow them make use of their surplus staff and branch network and
increase earnings.
30
However, they have to keep an arms length relationship between the two businesses. For banks
which wish to sell insurance products through their branches, the present laws require that all
directors and officials selling insurance undergo training and pass the agents examination.
Moreover, until the law provides for insurance brokers, banks will not be able to sell policies for
more than one insurance company.
5. GROUP INSURANCE
Product:
Group Insurance offers life insurance protection under group policies to various groups such as
employer-employee, professionals, co-operatives, weaker sections of society etc. It also provides
insurance coverage to people under certain approved occupations at the lowest possible
premium cost. Besides providing insurance coverage, it also offers group schemes to employers,
which provide funding of gratuity and pension liabilities of the employers.
Group insurance plans have low premiums. Such plans are particularly beneficial to those for
whom other regular policies are a costlier proposition. Group insurance plans extend cover to
large segments of the population including those who cannot afford individual insurance. As such
the premier you need to pay is comparatively lower and at the same time you can avail of
insurance benefits.
The main features of the schemes are low premium and simple insurability conditions. Premiums
are based upon age combination of members, occupation and working conditions of the group.
A number of group insurance schemes have been designed for various groups. These include
employer-employee groups, associations of professionals (such as doctors, lawyers, chartered
accountants etc.), and members of cooperative banks, welfare funds, credit societies and weaker
sections of society. Creditor-Debtor groups are also offered group insurance schemes.
Group insurance schemes providing uniform cover can be granted to outstanding loans. These
groups are Members of primary housing societies where housing loans are granted by State
Apex housing societies, borrowers granted loans by Institutional agencies in Public/Joint Sectors
for housing purposes and borrower members of cooperative societies/banks formed by
employees of the same employers.
6. INNOVATIVE PRODUCTS:
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Women’s Policy:
Women’s policy provides funds in times of need like education, marriage or sickness with
Guaranteed and Loyalty Additions during the policy term period and after maturity.
Presently the sole women's policy available in the market is Jeevan Sneha.
The benefits available for women under the Women's policy plan are
 Encashment of survival benefit as and when needed.

 Free cover for three years after two years’ premiums is paid.
 Accident benefits.
 Guaranteed additions @ Rs.70 per annum.
 Flexibility in premium payment - including facilitation of advance payments.
 Option for retaining the policy moneys with LIC
Ladies, working or unemployed, single or married are subject to just as many risks as their male
counterparts. They are required to fulfill their responsibilities at the workplace as well as manage
their households too.
Since the lack of their presence cannot be easily compensated by their dependents, it is
advisable that ladies, from every socio-economic environment invest a part of their resources in
the women's policy available in the market, especially the one specifically designed and aimed at
women in general.
This policy has been designed to encourage women to save for their safety and security. All
major female lives until the age of 50 are eligible. The policy is issued for a fixed term of 20 years.
Only one player in the market and that is Life Insurance Corporation.
Special Plan:
Special plans are insurance policy plans available from the national insurance providers to serve
the needs of citizens that cannot be commonly classified or segregated. These special plans are
designed to satisfy needs ranging from debt-clearance in event of the death of the insured to
financial aid in the event of a medical mishap.
Special plans also provide financial assistance for handicapped dependants as well as
emergency surgery required if and when a medical condition arises.
32
Since special plans are designed for people with diverse and specific needs, the average citizen
may not necessarily need or use them.
Yet, in the normal course of life, situations may arise when you may need to provide for
unplanned or unexpected contingencies and mishaps.
With this view in mind, it is essential that you are able to account for and make the necessary
provisions to combat any such circumstances that might prove detrimental to you and your
family's well-being.
Special plans should be bought by people after carefully scrutinizing their lifestyles and
circumstances.
If the individual insurance buyer feels that he and/or his family might be subject to financial and
physical risks of any sort that cannot be met by the regular array of insurance plans, then it is
imperative that he or she invests a part of his existing resources to provide for such
contingencies.
SWOT ANALYSIS TO THE INSURANCE INDUSTRY
Strengths
• Premium rates are increasing and so are commissions.
• The variety of products is increasing.
• Prospects expect more services from their brokers.
Weaknesses
• Insurance companies are often slow to respond to changing needs.
• There is an increasing trend of financial weakness among the companies.
• There are more competitors for agencies to compete with banks and Internet players.
Opportunities
• The ability to cross sell financial services is barely being tapped.
• Technology is improving to the point that paperless transactions are available.
• The client's increasing need for an "insurance consultant" can open new ways to service the
client and generate income.
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 Under-developed market with huge potential for growth
Threats
• The increasing cost and need for insurance might hit a point where a backlash will occur.
• Government regulations on issues like health care and terrorism can quickly change the
direction of insurance. Increasing expenses and lower profit margins will hit hard on the smaller
agencies and insurance companies.
• Increasing expenses and lower profit margins will hit hard on the smaller agencies and
insurance companies.
INSURANCE AND INFORMATION TECHNOLOGY:
Lower costs and high quality of IT work in India are the factors inducing insurance firms the world
over to source IT systems from this country.
The use of information technology (IT) could make savings of up to 20% in the operations of
insurance players, while also leading to quicker and more effective transactions and processing.
Benefits of IT:
1. Due to the proliferation of the internet worldwide, insurers have unprecedented access to
customers and the ability to offer effective service besides ensuring organizational
profitability.
2. Apart from cost savings and the benefit of better customer relationship management, the use
of enterprise-wide IT solutions can help prevent fraudulent claims.
34
3. Many firms have not lost the opportunity of relocating various processes to India because of
its literate workforce, lower-cost advantage, and the high quality of work and increased
productivity that can be gained.
4. The insurance sector traditionally has a labour-intensive business model; and while its
operations have become more centralized over the past few years, it is still heavily dependent
on labour for back and front office processing.
Vertical services offered by BPO units for Insurance Industry:
 New business acquisition processes

 Claims processing
 Policy owner services
 Transaction and re-insurance accounting
 Statutory reporting
 Annuities processing
 Benefit administration
INSURANCE AND RISK MANAGEMENT:
It is a systematic way of protecting the concern’s resources and income against losses so that the
aims of the business can be reached without interruption.
Risk management offers a systematic, structured approach to assessing risk and implementing
controls to prevent or minimize losses. Today, all businesses are driven by the need to minimize
risk, particularly financial risks.
 Why risk management?

Risk pervades everything. Evolution increases the number of risks faced by members of society,
companies and other organisations. We cannot ignore risks and therefore we have to learn how
to live with risks. Risk implies cost. Avoiding negative surprises cost mo0ney, but so does paying
for the losses afterwards. Organisations are formed to perform risk management. The following
are the key factors that influence and drive the need for an effective risk management function:
 Hazard identification and control of property and liability risks.
 Unknown becomes known.
 Never allow a “Micro” risk to become “Macro”.
35
 Protection of company’s profits and recovery of standing charges in the event of a

business interruption.
 Institution of disaster planning and control measures.
 Understanding and providing for uninsured losses. Ensuring adequate insurance on
optimum cost.
 Premium cost reduction through innovative alternative risk management steps such as
deductibles, self-insurance, first loss covers, etc.
 Ensuring compliance of warranties/ conditions in the insurance policies so that losses/
claims will be paid in full.
 Benefits of risk management

 Complete identification of all risk-exposures and hazards to assets and putting in
mechanisms to control/ minimize losses.
 Ensuring comprehensive and adequate insurance protection for such identified risks
 Ensuring optimal insurance protection at affordable premium costs.
 Active risk management- Business protection through risk management

Before defining risk management it is important to understand the definitions of “risk” and
“management” separately. “Risk” is defined ad “a measure of loss or human injury in terms of
both incident likelihood and management of the loss or injury” and “management” may be defined
as “the process of planning , organizing , leading and controlling the resources and activities of an
organisation in order to fulfill its objectives most cost effectively:. In view of these definitions it is
easy to see that many of us are in roles of managing to fulfill the objectives of the organisation.
Different organisations will obviously have one or more of a variety of objectives such as profit,
growth, public service or the performance of a governmental function. However, the continuum of
objectives is generally similar. The first objective in this continuum is to reach a fundamental goal:
survival, often in the face of potentially crippling accidental losses. Beyond survival, an
organisation’s goals then proceed into providing accidental losses from interrupting the
organisation’s operations, slowing its growth, or reducing its profit or cash flows.
 Risk management steps

Risk management can be divided into a sequence of 5 steps
 Identifying exposures that may interfere with the organisation’s objectives;
 Examining the feasibility of risk management techniques for dealing with these
exposures;
 Selecting the best technique(s)
 Implementing the technique(s):
36
 Monitoring the results to ensure that risk is effectively managed.
 Risk Identification – The 3 step process

 Perception and identification of the loss producing event
 Analysis of all operative perils and consequential hazards
 Understanding of all consequential losses
 Risk management – The cause and effect relationship

Risk management is simply a systematic process of managing an organisation’s risk exposures
to achieve its objectives in a manner consistent with public interest, human safety, environmental
factors, and the law. It consists of risk control with the intent of providing efficient pre-loss and
post-loss plans that reduce the likelihood of a loss and minimizes the severity of adverse impact
on the organisation and other stake holders.
 Risk removal and reduction
There are established and tested techniques by which risks may be controlled.
1. Avoiding risk: A risk may be avoided by not accepting or entering into the event which
has hazards. This method has severe limitations because such a choice is not always
possible, or if possible, it may require giving up some important advantages.
Nevertheless, in some situations risk avoidance is both possible and desirable.
2. Spreading risk: It is possible to spread the risk of loss to property and persons.
Duplication of records and documents and then storing the duplicate copies elsewhere is
an example of spreading the risk. A small fire in a single room can destroy the entire
records of a department’s operations. Placing people in a large number of buildings
instead of a single facility will help spread the risk of potential loss of life or injury.
3. Loss Prevention or Reduction of risk: “An ounce of prevention is worth a pound cure”,
according to an old saying. Today, this statement provides the guide for the control of
risk. Risk may be reduced, eliminated or certainly controlled by using a well-planned loss
prevention program.
Risk removal examples:

 Closure/ segregation of units
 Substitution of raw materials
 Shifting of complex
 Appointing alternative suppliers
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Risk reduction objects:

 Reducing probability of occurrence
 Early discovery of loss
 Limitation of loss
Means:
 Educational and training devices
 Installation of physical devices
 Procedural devices
4. Risk transfer: Transfer of risk to insurance carriers or others. Risk may be transferred
contractually to others. For example, when leasing facilities from others, the lease could
require the lessor to assume all property and liability losses. Many risks can and should
be transferred to an insurance company. By doing so, that part of the risk is reduced to a
certainty, i.e., the amount of the premium and deductible.
5. Risk financing: Beliefs about the nature and effects of risk sources very from risk to risk,
individual to individual, and stakeholder group to stakeholder group. It is therefore
inappropriate to seek a universal level of acceptable risk that can be regarded as a
threshold below which risk is deemed acceptable. Perception of the risk also plays a
critical role.
Effective risk management works best when implemented by the organisation generating
the risk. Considering the inherent characteristics only a comprehensive and systematic
approach can account for risk or balance them against the associated benefits and costs
in a logical and consistent way.
Objectives of risk financing

Pre-Loss objectives
 Operating efficiency
 Acceptable level of risk
 Compliance issues
Post-Level objectives
 Survival
 Continuity of operations
38
The deal with risk management

Businesses are constantly driven by the need to minimize risks, be they economic, environmental
or social. Risk management is a proven, structured, visible, logical, scientific approach which
addresses conflicting objectives. It requires multi-stakeholder involvement and is an investment is
efficiency.
It is a proven fact that an effective risk management framework can add value by improving
competitive advantage and reducing the level of losses from both large events that can imperil
financial condition and smaller, more frequent incidents.
It is important to remember risk management, as implied by its name, is simply a management

strategy or methodology. Legislating risk management may appear to be the solution. However, it
may create other sizable barriers. Defining acceptable risk may be a daunting and arduous
undertaking. Therefore, it is imperative that risk generators, risk bearers and risk transfer agents
(insurers) accept leadership roles in defining acceptable risk as well as managing and profiting
from it.
REQUIREMENTS FOR AGENTS AND AGENCIES TO SELL INSURANCE PRODUCTS
Recruitment process
Under the regulation of Insurance Agents Regulatory Act 2000, any person desirous of obtaining
an agent's license shall have to pass the pre-recruitment examination in life or general insurance
business conducted by an examination body duly recognized by the Insurance Regulatory and
Development Authority (IRDA).
Qualification of the applicant
The applicant must possess the minimum qualification of pre-university or equivalent examination
conducted by any recognized board or institute, where the applicant resides in a place with a
population of 5,000 or more as per the last census, and pass in tenth standard or equivalent
examination from any recognized board or institution if the applicant resides in any other place.
An applicant applying for a license to act as an insurance agent will have to complete training
from an IRDA-approved institution with at least 100 hours of practical training in life or general
insurance business, as the case may be, which may be spread over three to five weeks. For
renewal of his license, the agent will have to undergo training for just 25 hours.
39
Composite agents' training
Applicants seeking license to act as a composite agent shall have to undergo training in an
approved institution, with at least 150 hours' practical training in life and general insurance
business, which may be spread over seven to eight weeks.
Training of professionals
Professionals like associate or fellows of Insurance Institute of India (III) or Institute of Chartered
Accountants of India (ICAI) or Institute of Costs and Works Accountants (ICWA) or Institute of
Company Secretaries of India (ICSI), MBA from a recognized university or the candidates
possessing professional qualification in marketing from a government-recognized university or
institute shall have to complete just 50 hours of training.
Every person aspiring to take up agency as a career will have to undergo on-the-job practical
training with the designated company where s/he will work under the supervision of a sales
functionary.
The trainees will be taught the subtle art of creating the need, awareness and importance of
insurance in the mind of the customer, understanding the requirements of the clients, and
proposing a couple of alternative solution for satisfying the wants of the clients.
Most people have their first contact with an insurance company through an insurance sales agent
or broker. These professionals help individuals, families, and businesses select insurance policies
that provide the best protection for their lives, health, and property.
Insurance agents have to work exclusively for one insurance company while the brokers can
place insurance policies for their clients with an insurance company that offers the best rate and
coverage.
In either case, agents and brokers prepare reports, maintain records, seek out new clients, and,
in the event of a loss, help policyholders settle insurance claims. Increasingly, some may also
offer their clients, financial analysis or advice on the ways they can minimize risk.
ADDING VALUE
From a product manufacturer's viewpoint, there continues to be a growing need to provide value-
added services to agents. Insurance agents expect product suppliers to assist them in building
their practice beyond product promotions.
40
Numerous studies have shown that product suppliers and dealers who provide true value-added
services to advisors will substantially benefit from stronger relationships and increased sales.
One such strategy is to enabling cross-selling of financial products like:
 Cross-selling mutual funds to insurance clients, and

 Cross-selling insurance products to investment clients.
These programmes independently train insurance agents to sell other financial products to
overcome the obstacles associated with transitioning their practice to cross-sell other products
and services to existing clients. The programmes help advisors apply a process-driven approach
to client mining that will lead to a greater success in insurance or investment product sales.
NEW PRODUCTS:
New products have been launched by life insurers. These include linked-products. Insurance
products from the new insurance companies now give a lot more options to customers. New
insurance products are more transparent, flexible & customized to the need of different types of
individuals. "Free-look" period of 10 days where customer has the option of returning the policy
within 10 days if it does not meet his requirements. Loading of riders to basic range of products &
thus providing lots of flexibility to the customers are few of the examples.
Insurance Companies are now providing information about their performance on a regular interval
to bring transparency in declaring bonuses.
CHANNEL PRODUCTIVITY
The reason channel productivity is the No 1 problem most companies are worried about is that
the cost is skyrocketing and not generating increased revenue. Channel decisions are now
elevated to a strategic level. The overriding concept is to become customer-centric and to focus
channels on improving the customer experience.
But it is not advisable to use all channels to serve all customers. Some customer segments may
prefer certain channels, but if these segments are not profitable, it may be prohibitively expensive
to serve them using their preferred channels. Consequently, insurance companies need to tailor
their channels to appeal to the largest number of profitable customers to maximize earnings.
IMPROVING AGENCY EFFECTIVENESS
41
Insurers must begin to focus on the quality of their customer relationship management (CRM) and
sales activities, with "improving sales effectiveness" as the top priority — allowing the agents to
spend more time with their clients and prospects (what they do best) and less time in performing
administrative duties.
The industry has focused on product creation and largely ignored distribution and sales
strategies. Only by shifting their focus to having more interaction with policyholders can insurance
carriers expect to strengthen brand loyalty, re-establish value pricing and sell high-margin
products. This will require mobile support systems that facilitate increased face-time with
customers.
The ultimate mission is to deliver on a customer-centric corporate strategy with channels that
provide consistent quality and satisfaction to customers and a profitable return to the company.
Here, then, lies the potential for creating customer value so that it defines our brand versus
competitors.
INSURANCE – THE FUTURE.
With the Indian Insurance Industry riding on the wave of a 10% plus growth rate, annual revenues
exceeding $8bn, and a penetration level of insurance at an abysmal 1.8%, both, the general and
life insurance businesses, have created a market for themselves. The infusion of international
experience with the opening up of the sector is expected to bring with it new impetus, new
products and new technologies. Global practices bring with it a great distribution advantage, a
strong customer base and a historical association with this business.
The insurance industry today is undergoing dramatic changes due to the development of new
innovations that are strengthening existing customer relationships as well as seeking new
relationships.
Privatisation has opened the barriers that once segmented the industry and prevented new
companies from entering the market — offering new products or opening new lines of business.
Such movements have increasingly demanded better technology tools to acquire new customers,
retain existing customers, improve customer services, reduce operating expenses and manage
information… particularly at the point of sale.
42
With the liberalization of the Indian insurance sector that threw open doors to many insurance
companies to set up their bases in India, the imminent challenge is the management of a huge
number of insurance agents and policyholders.
Stringent processes such as interviews, selection criteria, recruitment of insurance agents,

training and certification processes are posing new challenges, especially considering the
complexity of Indian topography and population density.
Technology has greatly impacted the insurance agency, making it much more efficient and giving
the agent the ability to take on more clients. Through computers agents are now linked directly to
the insurance companies, making the task of obtaining price quotes and processing applications
and service requests, much easier and faster. IT also enables an agent to be better informed
about new products that the insurance carriers may be offering.
The four major issues for insurers in managing the agency network revolve around the strategies
for fixing the distribution network:
 Align channel strategies around customer demand and channel usage

 Manage channels against business profitability requirements and profitable revenue
growth
 Integrate channels with back-office staff and processes to ensure that everything works
smoothly
 Deliver consistent value to customers via well-supported, trained and motivated people in
the channels
The entrance of private players and further entry by new companies will only prove beneficial to
the insurance industry and increase the market for insurance products. The flow of foreign funds
in the business by way of equity will help bring much needed funds for the sustained growth of
the business. Also, the expertise and experience of these well established insurance giants
abroad will bring professionalism and new and improved products to the Indian market.
The need and importance of insurance is increasing and will further increase not only due to
external threat perception but also in terms o well-being of citizens within. Better healthcare and a
more progressive revenue system will provide a foundation for a social security system which
today is deficient.
Although none of the private players have an infrastructure which is anywhere close to what LIC
has, their professional work culture and due to their collaboration with their foreign partners they
have brought a lot of new and innovative products. Due to this they have been able to make their
43
presence felt in the insurance industry and are only adding to the growth of this industry. This can
be evident from the latest figures released by the IRDA where, although the public sector
companies have a lion share in the market with a premium of Rs. 1134 crores, the new private
players were also able to garner Rs. 955 crores during June 2003.
GLOSSARY OF TERMS
Actuary
A person professionally trained in the technical aspects of insurance, particularly in the
mathematics of insurance, such as calculating premiums and proper Fund reserves.
Actuaries assist in estimating the cost of implementing new benefits or changing existing
benefits.
Annual Premium
The yearly payment that a policyholder makes to own an insurance policy.
Annuity
(1) A contract that provides an income for a specified period of time such as a
number of years or for life.
(2) The periodic payments provided under an annuity contract.
(3) The specified monthly or annual payment to a pensioner. Often used
synonymously with pension.
Beneficiary
44
(1) Person named by the participant in an insurance policy or pension plan to receive
any benefits provided by the plan if the participant dies.
(2) A person designated by a participant, or by the terms of an employee benefit plan,
who is or may become entitled to a benefit thereunder.
Broker
A licensed insurance solicitor who places business with a variety of insurance companies
and who represents buyers of insurance rather than the companies, even though he or
she is paid a commission by the companies.
Certificate of Coverage
Also referred to as Certificate of Insurance. This serves as a statement of coverage and
an explanation of benefits under a group insurance policy.
Claim
A demand to the insurer or Benefit Fund by the insured person or beneficiary for the
payment of benefits under a plan or policy.
Co-insurance (clause)
The arrangement whereby the insured pays a specific portion of covered expenses with
the plan paying the balance.
Commission
The broker’s basic fee for purchasing or selling an insurance or benefit plan as an agent.
This fee may or may not be negotiated.
Indemnity Payment
Benefits payable to the insured.
Insurance
is a contract between two parties - the insurer (the insurance company) and the insured
(the person or entity seeking the cover) - wherein the insurer agrees to pay the insured
for financial losses arising out of any unforeseen events in return for a regular payment of
"premium".
Insured
45
In life insurance, the person on whose life an insurance policy is issued; in other
insurances, the person to whom or on whose behalf benefits are payable under the
policy.
Long-Term Care
Institutional and non-institutional assistance provided to people with chronic health
conditions, physical disabilities and/or cognitive impairment, who are unable to fully care
for them. Also called custodial care.
Reinsurance (Stop-Loss Insurance)

Contractual assumption of a portion of one insurer’s risk by one or more insurers. Stop-
loss insurance is a form of reinsurance, in that an insurance carrier assumes coverage
when claims exceed a specified dollar amount over a set period of time. There are 2
types of stop-loss insurance: (a) Aggregate, where insurance payments commence when
aggregate or total claims exceed a set figure within a specified period of time, and (b)
Specific, where insurance payments commence when a single large claim exceeds a set
figure within a specified period of time.
Self-Insured (Self-Funded)
A plan in which the insurance company or service plan collects no premiums and
assumes no risk. In a sense, the employer or Benefit Fund providing the benefit acts as
the insurance company, paying claims with the money ordinarily earmarked for
premiums. Regardless of the specific self-funding technique a firm chooses, it will need
either to buy its administrative services outside the company or develop them in-house.
Hence, self-funded arrangements are referenced as “ASO”(administrative services only)
or “self-administered.”
Total Disability
An illness or injury that prevents an insured person from continuously performing every
duty pertaining to his or her occupation or from engaging in any other type of work for
remuneration. (This definition varies among insurance policies and benefit plans.)
Waiver of Premium
A provision that sets certain conditions under which an insurance policy will be kept in full
force by the company without the payment of premiums.
46
REFERENCES
1. IRDA Journal, May 2003
2. Journal of Chartered Accountant, January 2001
3. Indian Insurance Market Review, Issue by AON Global 2002
4. Insurance First Sept-Oct 2003
5. Economic Times Supplement, Jan 2003
6. Cover Page, November 2002
47

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Sector Report for Insurance 2002 - 2003

1“WHEREVER THERE IS UNCERTAINTY, THERE IS RISK. WHERE THERE IS RISK, THERE

A well-developed and evolved insurance sector is needed for economic development as it

HISTORY OF INSURANCE IN INDIA:

1. Important milestones in the life insurance business in India

2. Important milestones in the general insurance business in India

PRESENT SCENARIO AND REGULATORY ENVIRONMENT

Insurance Regulatory & Development Authority (IRDA):

IRDA was constituted by an act of parliament.

(a) issue to the applicant a certificate of registration, renew, modify, withdraw,

(b) protection of the interests of the policy holders in matters concerning

(e) promoting efficiency in the conduct of insurance business;

(f) promoting and regulating professional organizations connected with the

(k) regulating investment of funds by insurance companies;

(l) regulating maintenance of margin of solvency;

(m) (m)adjudication of disputes between insurers and intermediaries or insurance

(n) supervising the functioning of the Tariff Advisory Committee;

(o) specifying the percentage of premium income of the insurer to finance

(q) exercising such other powers as may be prescribed

Tariff Advisory Committee (TAC)

(Statutory Body under Insurance Act 1938)

relating to Fire, Marine (Hull), Motor, Engg. and Workmen Compensation.

1. Bajaj Allianz General Insurance Co. Ltd.

2. ICICI Lombard General Insurance Co. Ltd.

3. HDFC Chubb Co. Ltd.

4. IFFCO Tokyo General Insurance Co. Ltd.

5. National Insurance Co. Ltd.

6. New India Assurance Co. Ltd.

7. Oriental Insurance Co. Ltd.

8. Reliance General Insurance Co. Ltd.

9. Royal Sundaram Alliance Insurance Co. Ltd.

10. Tata AIG General Insurance Co. Ltd.

11. United India Insurance Co. Ltd.

 ECGC- Provides export credit insurance support to Indian exporters.

Fire Insurance Policy

Burglary Insurance Policy

All Risk Policy

Plate Glass Insurance Policy

Domestic Appliance Policy

This policy is suitable to householders owning domestic appliances. For example

Householder’s Package Policy

Under motor insurance there are two types of Policies:

General Insurance Corporation Of India

 New India Assurance Company Ltd

ICICI Lombard General Insurance Company Limited

Baja Allianz General Insurance Company Limited

The Company currently offers the following products:

Non Tariff products

Risk Management Services

We offer a gamut of risk management services that include:

Cholamandalam General Insurance

In Business Insurance they provide:

IFFCO- TOKIO General Insurance Co. Ltd

New Business Scenario and Performance for 2002-2003:

Company Wise Performance (May 2003):

S.No. Insurer Premium(lakh) No. of Market Share

Marine Cargo 1,389.77 8,234

TOTAL 2,97,122.00 95,06,487

MARKET SHARE FOR GENERAL INSURANCE

1. Allianz Bajaj Life Insurance Co. Ltd.